AG Nessel takes action to eliminate mortgage servicer overdraft fees and processing fees

LANSING – Michigan Attorney General Dana Nessel this month joined two multi-state actions aimed at eliminating unnecessary fees that negatively impact consumers.

“We know the cost of goods and services is at an all-time high,” Nessel said. “That’s why it’s more important than ever to take action against companies that charge fees that end up hurting the customer more than offsetting their own operational costs.”

The actions are summarized below.

Nessel joined a multistate coalition of attorneys general who have called on the CEOs of JPMorgan Chase, Bank of America, US Bank and Wells Fargo to eliminate all overdraft fees on consumer bank accounts.

In a letter to financial institutions, Nessel urged every bank to eliminate overdraft fees by the summer to create a fairer and more inclusive financial system for consumers. Overdraft fees have disproportionately hit vulnerable families and communities of color, pushing them deeper into debt.

“Charging overdraft fees that can sometimes be more than five times the original purchase amount is abhorrent,” Nessel said. “By eliminating these fees entirely, banks are showing that they care about the financial well-being of their customers as much as they do their own.”

Overdraft fees are having a detrimental impact on millions of consumers across the country. In some cases, consumers may be billed $35 for a purchase of $5 or less. Studies have shown that the vast majority of these fees fall on low-income consumers, earning less than $50,000 a year, and communities of color. The consequences are devastating for the financial health of consumers and, at worst, result in individuals not banking.

Despite these well-known consequences of overdraft practices, these fees remain big business for big banks, according to a recent study released by the Consumer Financial Protection Bureau (CFPB). JPMorgan Chase, Bank of America, US Bank and Wells Fargo are among the top five US banks by total assets. According to the CFPB, three of these institutions alone accounted for 44 percent of total overdraft and overdraft-like fees at major banks in 2019. The mere elimination of overdraft fees by these four institutions would dramatically improve the financial health of millions of Michigandians and consumers across the country.

Nessel joined a coalition of 22 state attorneys general calling on the CFPB to ban mortgage servicers from charging convenience fees. According to the Coalition, convenience fees charged by mortgage servicers are among the more exploitative “pay-to-pay” fees consumers face.

In their letter, the Attorneys General highlighted convenience fees in response to the CFPB’s request for information about various fees imposed on consumers in the financial market. The Coalition urges the CFPB to assess convenience fees in the mortgage industry and argue that they are particularly unfair and abusive because, unlike most marketplaces, homeowners have no choice in their mortgage servicers.

“Preferential fees are exploitative and ultimately result in mortgage servicers getting paid twice. It’s unfair that consumers have to pay additional fees based on how they pay their bills,” Nessel said.

In their statement, the Attorneys General note that many consumers who take out a mortgage believe they are entering into a long-term relationship with a particular financial institution. However, after origination, many mortgage loans and their servicing rights are sold in the secondary markets and may be sold many times during the life of the loan. As a result, consumers do not know which company will service their mortgage loan and have no option to switch service providers. The letter states that the CFPB’s continued assessment of discretionary fees charged by service providers is warranted by the tenor of mortgage loans coupled with service providers’ lack of consumer choice and the fact that some service providers have attempted to impose convenience fees to levy even if they are not authorized by the original loan documents.

The coalition also raises concerns that the convenience fees it charges exceed its actual cost of accepting payments online or by phone. In its statement letter, the coalition cites an industry study that found that processing a check costs collection agencies between $1 and $4, while processing payments made online or over the phone typically costs collection agencies about $0.50 per transaction . If a mortgage administrator’s most basic function is to accept payments, attorneys general argue that an administrator capable of charging an additional fee for performing its core function is fundamentally flawed. Mortgage servicers have already been compensated for the cost of accepting payments when they either complete the original loan or elect to purchase servicing rights on the loan. By charging convenience fees, mortgage servicers are essentially compensated twice when they accept a payment.

Alternatively, the Attorneys General are encouraging the CFPB to ban service providers from charging fees that exceed the actual cost of processing a borrower’s payment. The coalition also requests that the CFPB require servicers to fully document their costs to support the collection of convenience charges.

###